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The Spider Network: A Book Review

A new book was recently released about the events surrounding the alleged LIBOR fixing conspiracy. Authored by Wall Street Journal reporter David Enrich, The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History tackles the issues from a unique perspective, focusing on one of the main bankers involved, Tom Hayes. Hayes, formerly a trader at UBS and Citigroup, was prosecuted by the U.K. Serious Fraud Office in 2015. He was convicted of conspiracy to defraud for his role in fixing LIBOR and is serving an 11-year prison sentence.

Relevant to antitrust law, The Spider Network describes two ways Hayes attempted to manipulate LIBOR (and other benchmarks, such as the Tokyo equivalent, TIBOR). First, Hayes pressured the benchmark submitters in his own bank (UBS) to report interbank borrowing costs that were either higher or lower than UBS’s true interbank borrowing costs depending on whether Hayes’s trading positions would benefit from a higher or lower benchmark rate. This pattern alone likely would not be enough for antitrust liability under U.S. law; although potentially fraudulent, UBS’s inaccurate submissions were unilateral acts. Moreover, because UBS was only one of many banks whose submissions were used to determine the benchmark, UBS may not have had the requisite market power for liability under Section 2 of the Sherman Act.

But according to the book, Hayes also attempted to manipulate LIBOR through other third parties. By communicating directly with employees at other banks and by using brokers as intermediaries, he allegedly caused certain other banks to make false LIBOR submissions too. This parallel conduct, which certain private plaintiffs have alleged amounts to a per se antitrust violation under Section One of the Sherman Act, has been the primary basis for the antitrust claims against the defendant banks in the civil litigations on which this blog has previously reported here, here, here, and here.

In these matters, plaintiffs (investors who purchased from defendant banks securities that paid interest indexed to a LIBOR rate) allege that the defendant banks manipulated LIBOR, allowing the banks to pay artificially low interest rates and causing investors to receive smaller interest payments than they would have received in a fair market. The Second Circuit and the Supreme Court have weighed in on various issues in the cases, which have not yet reached resolutions.

The Spider Network is a recommended read for anyone involved in the LIBOR cases in particular or generally interested in understanding the personalities and human side of an allegedly extensive market manipulation conspiracy.